Vortragende

Global growth has been weak and real economies remain fragile while stock markets have been rallying. This disconnect reflects the dichotomy between economic fundamentals and market speculation. Financial institutions have fueled speculation by engineering opaque financial instruments and employing massive leverage. Central banks have exacerbated this speculation and, by creating excess liquidity, potential bubbles. In addition, these policy measures have distorted fundamentals and market price mechanisms. In contrast, participants in the real economy have become more risk-averse due to uncertainty and the lack of confidence. The economy has become less dynamic as companies are abstaining from investments and individuals are shying away from entrepreneurial risks. More fundamentally, the underlying issue is the increasing wealth gap, which has been forming over the past 40 years. In the course of globalization, more power has been concentrated in the hands of ever fewer institutions and individuals. Meanwhile, pressing issues like low-growth, record unemployment and unfavorable demographics remain unresolved. We have borrowed wealth from the future and pay-day has arrived. Will we be able to tackle these problems, and if so, how?

When we take a look at banks' balance sheets and macro figures about the European economy, it becomes quite apparent that large parts of the financial sector have become disconnected from the real economy: banks' balance sheets have grown much faster than the EU GDP over the past decade and the largest banks use less than a third of their balance sheet to serve non-financial corporations and households.
The problem is compounded by the fact that banks are not fully exposed to market forces: ultimately, taxpayers pay for the risks taken by institutions that are too big too fail, weakening public finances in the process. This was the case in 2008, and it still is today. The solution to this problem is threefold: making banks more resilient by requiring higher capital buffers and lower leverage, splitting essential activities that serve the real economy from purely financial activities, making sure in case of losses that when shareholders have been wiped out the losses are absorbed by creditors and not by tax payers.